November 13, 2008, 6:00 am

Why I Think Canadian Banks Are Good Investments

by: The Financial Blogger    Category: Uncategorized
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– And Why They Are Not Going Bankrupt! –

A Western Canadian friend of mine called me the other day asking about the financial situation of banks in Canada. Since he knew I was working in the industry, he wanted to know what was being whispered behind the thick walls of the vault. We receive so much conflicting information that people are completely lost. Since there is a US banks going bankrupt every day, people start panicking and wonder if Canadian banks could go bankrupt too!

I actually think that Canadian banks are good investment right now. I believe that they have been severely judged.

A different economic system

The major advantage (during an economic crisis) is to have a highly ruled environment. In fact, Canadian Banks have much more rules to follow than our fellow American bankers. There is a very small number of banks (7 chartered banks, 5 major banks in Canada) compared to the US (about 8,500 banks… and the number keeps going down 😉 ).

They obviously suffered losses during this crisis (all banks did), but they couldn’t expose themselves as other banks in other countries did. Where they smarter than other banks? I don’t think so, I think it’s only because they couldn’t take as much risk since they are ruled under a different system!

They are making good money

If you look at their financial statements, most Canadian banks are making considerable profit so far this year (except the CIBC who suffered a bigger loss considering the current situation). They are currently restricting their credit policies; increasing their interest rate on mortgages (most banks are increasing their variable rate mortgage policies). This means that they will have a better control over their loans and become more profitable over the long term. Due to the economic context, they had to increase their provision for bad accounts. Now that they are lending only to “good” clients, they will have to decrease their provision in the upcoming years. Fewer provisions equal more profit on balance sheet 😉

High paying dividend yield

A good company with a good cash flow is able to maintain a high paying dividend yield. This is exactly the case of Canadian Banks; they are offering 5 to 6% dividend yield right now. You can therefore buy those shares and wait patiently. Your investment won’t lose its intrinsic value and you will be fully protected against inflation. I believe it is also a good alternative for Smith Manoeuvre fans 😉

Then again, I must write a small disclaimer saying that The Financial Blogger cannot be held as responsible for any loss due to any of your transactions. This post is just reflecting my personal opinion and it is no where to be close to a recommendation. Make your own study and research and have fun in the stock market turmoil!

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Comments

The canadian banks by being more conservative are always considered to be a bit prudish according to american standards but that policy has obviously paid off since they are relatively unaffected by the wall street tornado and have the temerity to offer 5 to 6% dividend !
Eat your heart out Lehmann !

Superb blog btw. Just came across it. Will be back for more.

Cheers

[…] Are Canadian banks good investments? […]

[…] The Financial Blogger tells us why they Think Canadian Banks Are Good Investments. […]

by: lostandconfused | November 18th, 2008 (4:12 pm)

I agree with the post in principle, but would add that the lack of competition is maybe a more direct source of banks profits in Canada.

The lack of competition (admittedly caused in part by lots of regulation on foreign investments) means banks are free to gouge consumers on fees, atm transactions, cheques/checks and pretty much anything else for that matter.

This is obviously good for canadian banks/investors, but perhaps a consumer backlash is on it’s way…

…on the other hand, my variable mortgage rate with ScotiaBank just went down to 3.50%. Go figure.

[…] The Financial Blogger tells us why they Think Canadian Banks Are Good Investments. […]

by: The Financial Blogger | November 18th, 2008 (10:13 pm)

Lostandconfused;

We might think we, as consumer, are getting ripped by Canadian Banks. However, working in the banking field, I can tell you that we are getting more and more aggressive in term of services, fees and interest charges.

in anyways, I rather get ripped by banks than seeing them falling one by one 😉

[…] The Financial Blogger tells us why they Think Canadian Banks Are Good Investments. […]